When a public company hosts a quarterly earnings call, it’s usually a predictable, even tedious affair. The executives who deliver news of the profit or loss are usually rehearsed and monotone. The analysts who ask the questions usually know what the answers will be, and it’s usually no answer at all. But recent earnings calls have been a bit more demonstrative – and these off-script moments have started some concerning whispers about the third and fourth quarter of this pandemic-driven ride of a year.
The most concerning comments came from Walmart and Target, both of which reported earnings last week. Doug McMillon, CEO of Walmart, took a question about stimulus spending and actually admitted that the cessation of said spending led to a downturn in July, the results of which will be reflected in the retailer’s Q3 reporting. He followed that with a veiled warning that the absence of another stimulus package would be disastrous for his company and the economy in general.
Target CEO Brian Cornell, who’s about as positive a person anyone will find in this business, raised some concerns about Q3 in his comments. He said that the back-to-school season would be longer than usual, even stretching into October. Cornell added that the holiday spending season would be earlier than expected, perhaps overlapping with back-to-school shopping in October.
That puts some serious pressure on the month of October as the foundation of Q4, when December is typically the key month. In fact, October 2020 will arguably be the most important month in recent history from a retail perspective. It will be the crossroads of incredibly consequential market pressures, all of which could make or break not only the industry, but also stock valuations and the balance of online and offline consumer spending.
Marking the end of the back-to-school season and the beginning of the holiday season, this October will be a defining month for malls, department stores and SMBs. The consumer spending that results from another stimulus plan will most likely come in October. And don’t forget – the month will mark the last lap of what is sure to be the most contentious presidential election in history.
But McMillon, Cornell and anybody else who’s prognosticating about Q3 and Q4 tends to overlook the flu-ridden elephant in the room. At the time of this writing, the Tableau visualization of global COVID-19 activity shows the U.S. at 5.6 million cases and rising. Deaths are at 176,000 and trending up. New deaths are still at 1,000-plus a day. Vaccine development is promising, but the timing of its deployment is nowhere near early fall of this year, and many parts of the country show no signs of willingness to mask up and stay socially distant to avoid a potential second wave. PYMNTS’ research has shown definitive evidence that until this happens, eCommerce will be the most comfortable game in town. In that case, October will belong more to Amazon than anyone, and the brick-and-mortar powers like Target and Walmart will need to ride their digital capabilities to a decent Q4.
Consumer retail spending through September, which has all the hallmarks and whispers of a non-event, will be dicey. Yes, there will be another stimulus package, but the tea leaves say it will be Labor Day before any agreement is reached. If that’s the case, the checks will arrive in late September at best. There’s some more pressure on October. Will those stimulus checks go to pent-up back-to-school demand? Will they give Apple and Best Buy a big Q4 as consumers rush off for Black Friday-style electronics deals? If Apple and Best Buy stores can stay open in the face of the pandemic, that kind of recovery can happen. But if they can’t, digital commerce will trend into the 30 percent range of total spend. Nothing wrong with that – but again, it plays very strongly into an Amazon-dominated October, especially if Prime Day is scheduled for Oct. 5, as rumored.
Then there are the intangibles. Nordstrom and Macy’s will report their earnings this week and next week. If they are disastrous, that will put more pressure on the department stores sector, the malls they anchor and the REITs that own the malls. The REITs have been as patient as they can with their biggest tenants. But here’s another off-script comment from recent earnings calls: When an analyst asked Simon Properties CEO David Simon why his receivables numbers were so high, he sounded like an angry landlord in reply. “People aren’t paying their rent,” he said, with no elaboration on the statement. If Macy’s, Nordstrom and other department stores can’t muster a solid October, that will put an unsustainable amount of pressure on their landlords and the banks that hold their funding. That could lead to a commercial credit crunch, which could slow any recovery beyond consumer spending restrictions.
It’s also worth mentioning that despite a mild consumer spending rebound, the retail recovery has been extremely uneven. Amazon, Walmart, Target and a handful of niche players are pretty much the only major retailers who aren’t asking for patience from investors. They may have solid business models and enviable audiences – but even these companies need to plan for a big October. Instead of just serving as the gateway month to the holiday selling season, this year, it could make or break retail.